As business and individuals go through the annual process of reviewing and renewing their insurance programmes, it won’t have escaped their notice that one particular insurance policy is likely to have seen its premium increased from last year for no obvious reason. Here, we explain why your Professional Indemnity insurance in particular, may see higher premium increases than usual this year.
The insurance market is inherently cyclical, and alternates between soft and hard market cycles. During the soft cycles, underwriting capacity is readily available and competition is fierce, with low prices. As the capacity is taken up and claims increase, underwriters tighten up their acceptance criteria and increase premiums. They reduce their exposure by limiting the capacity they offer to certain industries and there is less competition and even less inclination by underwriters to negotiate terms.
The Professional Indemnity (PI) market is going through a significant hardening market cycle, and has seen several underwriters withdraw from the market altogether. Some clients will have even received letters advising them to place their cover elsewhere – sometimes with liIle notice. Those that are getting renewal terms may find that even though they have never reported any circumstances or made a claim, their premiums are increasing by 20% or more.
A recent thematic review initiated by Lloyd’s of London found that two thirds of its syndicates were loss making, and PI was highlighted as one of the worst performers. This has driven a reduction in capacity which has led to the current hard cycle, and the withdrawal of underwriters from the PI market.
It is important to understand that these premium increases are not necessarily a reflection of their business, but more a reflection of the claims experience as a whole across the UK. Whilst the Channel Islands are nowhere near as litigious as the UK and doesn’t have the same sort of claim volumes, premiums will be rated on the experience of the market as a whole.
Whilst there are a good number of PI policies with relatively low limits of indemnity that can be dealt with by a simple single policy, many firms will buy much higher limits which may mean separating the cover into primary and excess layers. Excess layers are seeing rates almost double, meaning they can end up costing more than the primary layer even though they are further away from the sharp end.
High risk areas such as conveyancing, are increasingly becoming subject to a coinsurance clause, meaning that the insured has to contribute more towards any claims, and even precautionary notifications are now being met with more requests for further information.
Businesses and individuals should start looking at their PI renewals earlier than they normally would, to ensure they have sufficient time to properly review the market, and make alternative arrangements as necessary. Using an independent insurance broker can make the whole process easier and less time consuming, as well as provide you with local advice.